Bitcoin is a decentralised financial system, which means there is no need for a central authority such as a bank to make it work. All activity takes place on the blockchain where payments are verified, and money is held in wallets instead of bank accounts.
For example, one person could send bitcoin to anyone else in the world using the likes of a Luno Bitcoin wallet. This payment would be fast, cheap, convenient and not be processed by an authoritative figure or group.
The payments are verified with a process known as mining. Bitcoin miners race one another to solve a mathematical problem using computers. The first one to solve the puzzle will be the one who verifies the payment and adds that block of information to the chain of other payments.
Miners are compensated for their time and effort with bitcoin. This is why bitcoin mining was once a lucrative hobby – or even a career. However, bitcoin mining looks a little different today than it once was. Here are the details.
The Early Years
In the first years of bitcoin, anyone in the crypto community could become a miner and contribute to the cause and aims of the industry. Of course, anyone still can do it today, but the equipment involved and running costs compared with the reward does not make it as appealing
Miners would work from home using their computers to mine bitcoin and pick up their reward in the hope that bitcoin would boom and become worth a significant sum in the future – which it has done.
Bitcoin Mining Farms
The lure of making money by letting computer power take charge resulted in the creation of large-scale bitcoin mining farms. These were huge depots of computers constantly mining bitcoin for the reward. They make up the bulk of bitcoin mining today and usually in places where electricity costs are lower, such as China or Russia.
The 21 Million Bitcoin Question
Another concern is that there is a limit to how many bitcoins can be mined. Once the 21 million bitcoins have been mined, it is possible that there will be no motivation for miners to continue their work – and this could be disastrous for the industry. Yet, many believe the bitcoin protocol could be changed when the day does come around.
The Environmental Discussion
Bitcoin mining has come under scrutiny because of its environmental impact. The cost of electricity to run these farms, as well as the costs to keep farms cool can be significant.
One innovative way to tackle the problem has been proposed. Bitcoin mining farms could be repositioned to locations where oil extraction is taking place. Companies extracting oil usually obtain useful gasses but do not have the infrastructure to sell them on from their remote locations and are left to release them into the atmosphere.
By placing bitcoin mining farms side by side with oil extraction locations, these gasses could be used to power the mining farms and help the environment.